Spread versus commission
Lesson 12 · about 9 min
Retail FX brokers charge in one of two ways, and many offer both as separate account types. Neither is free, and neither is automatically cheaper. The only way to compare them is to put both in the same unit: pips per round trip.
Two pricing models
Spread-only ("standard") accounts. The broker widens the raw spread it receives from its LPs and keeps the difference. There is no separate commission line. EUR/USD might be quoted at 1.0 to 1.5 pips all-in.
Commission ("raw", "ECN", "pro") accounts. The broker passes on the raw spread with little or no markup and charges a fixed commission per lot, usually quoted per side or per round trip. EUR/USD might be quoted at 0.1 to 0.3 pips plus $3.50 per side per standard lot ($7.00 round trip).
Converting commission to pips
A commission is a dollar amount per lot. The pip value of a lot is also a dollar amount. Divide one by the other and the commission becomes pips:
commission in pips = round-trip commission per lot ÷ pip value per lot
For EUR/USD in a USD account: $7.00 ÷ $10.00 per pip = 0.7 pips.
Add the raw spread and you have the all-in cost:
| Account type | Raw spread | Commission (round trip, per standard lot) | Commission in pips | All-in cost |
|---|---|---|---|---|
| Standard | 1.2 pips | none | 0 | 1.2 pips |
| Raw | 0.2 pips | $7.00 | 0.7 pips | 0.9 pips |
| Raw | 0.2 pips | $5.00 | 0.5 pips | 0.7 pips |
| Standard | 0.8 pips | none | 0 | 0.8 pips |
In this example the raw account is cheaper than the 1.2-pip standard account but roughly equal to the 0.8-pip one. Which is cheaper depends entirely on the specific numbers, which is why you compute rather than assume.
Commission scales with lot size, so the pip cost is the same for a micro lot: $0.07 round trip ÷ $0.10 per pip = 0.7 pips. On yen pairs and crosses, use the pip value in your account currency from Module 2, because the commission is in dollars and the pip value is not.
Cost per trade in money
Once you have the all-in cost in pips, the cost of a trade is:
cost = all-in pips × pip value of your position
| Position | All-in cost | Pip value | Cost per round trip |
|---|---|---|---|
| 5 micro lots EUR/USD | 0.9 pips | $0.50 | $0.45 |
| 1 mini lot EUR/USD | 0.9 pips | $1.00 | $0.90 |
| 1 standard lot | 0.9 pips | $10.00 | $9.00 |
| 1 mini lot GBP/JPY | 2.5 pips | $0.666 | $1.67 |
Cost as a share of risk
The number that matters is the cost relative to the risk you take on the trade. Suppose you risk $40 on a 40-pip stop on 1 mini lot of EUR/USD at 0.9 pips all-in. The cost is $0.90, or 2.25% of the risk. Now suppose you take the same $40 risk on a 10-pip stop with 4 mini lots. The cost is $3.60, or 9% of risk. Same account, same risk, four times the cost, because the tighter stop needs a bigger position and the spread scales with the position.
| Stop (pips) | Lots for $40 risk (mini) | Cost at 0.9 pips | Cost as % of risk |
|---|---|---|---|
| 5 | 8 | $7.20 | 18% |
| 10 | 4 | $3.60 | 9% |
| 20 | 2 | $1.80 | 4.5% |
| 40 | 1 | $0.90 | 2.25% |
| 80 | 0.5 | $0.45 | 1.1% |
This table is the reason very short-term trading is so hard for a retail account. Below 10-pip stops the broker is taking a tenth of every trade off the top, and a strategy needs a large edge just to pay that.
Key idea: Convert everything to pips per round trip, then multiply by pip value to get money, then divide by risk to see what share of each trade goes to costs. A cost that is 2% of risk is background noise; a cost that is 15% of risk is the strategy's main opponent.
Things the headline number hides
- Spreads are variable. A "0.1 pip" raw spread is a London-session average. The same account may show 1.5 pips in the Asian session and 8 pips at rollover. Measure the spread when you actually trade.
- Minimum commissions. Some brokers charge a minimum per trade that makes micro lots disproportionately expensive. Read the schedule.
- Currency conversion. If your account is in one currency and the commission is charged in another, there is a conversion fee inside the fee.
- Inactivity and withdrawal fees. Not trading costs, but real.
The fees calculator lets you enter spread, commission and typical trade size and see the monthly cost at your trade frequency. Run it before opening an account, and again every month from your actual statement.
Try it: Take your broker's (or a candidate's) standard and raw account specifications for EUR/USD. Compute the all-in cost in pips for each. Then compute the monthly cost for 40 round trips of 3 micro lots. If the difference is under a dollar, pick whichever has better execution; if it is meaningful, you have your answer.
Recap
- Spread-only accounts bury the cost in a wider spread; commission accounts show a raw spread plus a per-lot fee.
- Commission in pips = round-trip commission per lot ÷ pip value per lot; add the raw spread for the all-in cost.
- Cost in money = all-in pips × pip value of the position.
- Cost as a share of risk rises sharply as stops get tighter, which is what makes scalping expensive.
- Spreads vary by session; measure them when you trade, not from the marketing page.
See it drawn
Original diagrams for the ideas on this page. Illustrative, not real market data.